"With lower risk aversion, the Philippines will be a good candidate as an investment destination," BSP Deputy Governor Diwa C. Guinigundo told reporters over the weekend.
"This should be an opportunity to save by repaying some of these [foreign-denominated] loans whenever it is feasible."
The BSP expects capital flows to the country to increase as more investors put funds in emerging markets as the global crisis subsides. Officials have said the expected increase in investments could complicate things for policy makers who, by next year, will be mopping up the excess liquidity released in the system to avoid stoking inflation beyond acceptable levels. "It complicates monetary policy, so we have to adapt [to] the situation," said Mr. Guinigundo.
The BSP had eased policy rates by a total of two percentage points since late last year, bringing interest rates to record lows. But its decision to put key rates on hold on Thursday last week was widely seen as the end of a long spate of monetary policy easing that started in November last year.
Mr. Guinigundo noted that the increase in liquidity would likely drive consumer prices up, affecting the central bank’s inflation targets.
Meanwhile, the appreciation of the peso would mean lower revenues for dollar-earning exporters.
The peso value of dollar-denominated remittances would also go down, he said.
He said aside from saving firms money in the long run, prepaying debts would also help control the amount of liquidity circulating in the system.
Latest BSP data showed pre-payments on foreign loans dropped by over 96% to $16.8 million in the first quarter of the year, from nearly $470 million a year earlier. — Paolo Luis G. Montecillo .
